Why recruitment startups fail

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The world of recruitment is an ever-changing landscape, with over 6,000 new UK recruitment businesses launched in 2021 alone according to data from Companies House.


However, not all recruitment startups are successful, and many fail due to a variety of reasons.

Understanding why this happens is critically important to help mitigate the risk to future startups, and why having access to the right resources and support network can make all the difference.


Why UK recruitment startups fail

1. Lack of market understanding

A common reason for recruitment startups failing is a lack of market understanding. Many businesses enter the market without a clear understanding of the industry, competition, and target audience. This can result in a poorly executed business plan, poor marketing strategies, and a lack of focus on the right target audience. There’s also often an assumption that just because you’re a good recruiter, you can run a successful business startup. Sometimes this can work out, but as the stats show many other times it doesn’t… at least not without the right support, infrastructure and investment behind you.

2. Insufficient funding

Unsurprisingly another reason for recruitment startups failing is insufficient funding. Recruitment is a capital-intensive industry, and businesses need sufficient funding to cover the costs of setting up the business, marketing, and staffing. 

Around 38% of UK startups fail because they run out of cash.

Particularly during the early stages of a company’s life, a startup can drain cash resources until the business gains traction. So without sufficient funding, agencies can struggle to survive and may have to shut down.

3. Poor management

 A business needs strong leadership to succeed, and poor management can result in a lack of direction and focus, mismanagement of finances, and a lack of communication between team members.

A strong recruiter with a well-developed network of clients and candidates can be a top biller in an established agency, but can easily struggle to cope with the all the additional administrative, management, legal and compliance issues encountered when running a startup business. It’s why many of our JV partners value the support they get and the infrastructure that’s accessible from the moment they join Bluestones, allowing them to focus on what they do best, recruit.

4. Lack of differentiation

With well over 30,000 recruitment companies in the UK, many of which are classed as micro businesses with under 10 employees, it can be difficult to stand out from the crowd. 

Launching a new recruitment startup can be time consuming and challenging, particularly if this isn’t your forte. Whilst it’s possible to engage a marketing agency to help create and build your brand, and develop your go-to-market strategy, this can be not only time consuming, but costly. 

At Bluestones, our in-house marketing team are experts at building the recruitment brands of the future. They’re on-hand to support your business as it becomes established and grows, and importantly, it’s all part of the service you receive – so doesn’t cost anything extra.

Mitigating risk

1. Choose the right investment company

It may sound obvious, but deciding on how to fund your business (remember insufficient funding and cash flow is one of the main reasons a startup can fail) is vitally important. Working with a specialist investment company – like Bluestones – is one of the ways your recruitment startup can fast-track its launch, but it’s important to choose the right investment company.

The investment company you choose should have a track record of success in the recruitment industry and a deep understanding of recruitment startups, so it can help your startup agency navigate the challenges and opportunities that arise.

2. Conduct market research

Before entering the market, it is important to conduct thorough market research. In many ways, you’ll likely have an in-depth knowledge of your chosen sector or location, as you’ve already been recruiting in it for a number of years before deciding to launch your own agency. 

As a recruitment investor, we’d want to know that you understand the industry, the competition, your target audience, etc. so that you can develop a clear strategy for your startup. 

3. Develop a strong business plan

Developing a strong business plan is essential for success in any industry, not just recruitment. Your plan should outline your startup’s objectives, target audience, marketing strategies, and financial projections – including a fully fleshed-out budget that covers sales and billings, as well as the cost of sales you’re likely to incur. 

4. Secure sufficient funding

Recruitment startups can be funded in a variety of ways. Some are self-funded through personal savings, or family loans; whereas others opt for independent funding through either mainstream lenders, or dedicated recruitment funding providers (like Recruitment Funding Solutions).

Others prefer a more supportive approach, such as the one provided by Bluestones Group. Funding and startup support is provided, reducing the overall personal risk and allowing new business owners to focus on recruitment and growing their GM.

Your funding route is often dependent on individual circumstances and preferences and there’s no one-size-fits-all approach that works for everyone. Do your own research and understand the pros and cons of each funding approach.

5. Hire the right team

Initially your new business may be a sole enterprise, where you’re the only person working in the company. In situations like this, having a support infrastructure of accessible subject matter experts, service providers and technical help can be invaluable.

Eventually, as your business grows, you’ll want to take on additional staff and build a team of people around you to help your startup expand. Hiring the right people, paying them fairly, and ensuring they buy in to your company’s values will help avoid the risks associated with hiring badly. 

Expansion and growth should be built into your business plan so that you know your business can afford to hire more people and you’re doing it for the right reasons at the right time. 

Access to the right resources and support network

Having access to the right resources and support network can make all the difference for recruitment startups. This includes access to industry experts, business mentors, and a supportive community of peers – many of which will have already experienced the challenges you’ll face as a new recruitment startup.  They’ll provide valuable advice, guidance, and support to help recruitment startups overcome most challenges.

It’s clear to see that there’s a consistent theme when thinking about why recruitment startups fail. Lack of planning – whether that’s research, understanding the market, budgeting properly, or securing adequate funding – is the fundamental reason so many startups can fail. 

With Bluestones Group’s proven investment model, all of these risks are fully mitigated. Our team of experts have in-depth knowledge of the recruitment industry, understand the pitfalls that need to be avoided by startups and established agencies, and can support you through the process of launching your own business and building a recruitment brand of the future.

Want to launch your own agency?

If you are looking for investment to launch your own recruitment agency or scale your existing company, find out more about what we offer in terms of investment and support via our investment division.

About Bluestones

Bluestones Investment Group invests in staffing service companies. We operate a balanced portfolio of businesses in specific divisional sectors and are always keen to receive investment enquiries.

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What you need to know

Although our existing brand portfolio operates across five core sectors, we’re not restricting future investments to just those. If you have a good proposition and a believable plan, that’s half the battle – so talk to us today about how we can help.

We’ve refined our start-up process so that we can typically launch a new recruitment business, fully set up with all the necessary branding, systems, and accounts, within a matter of weeks. 

Firstly, we need you to submit your investment enquiry. You can do that HERE.


As long as there’s sufficient detail in there, our Investment Director will review your proposal. All investments submitted will receive personal feedback.


After that, if your investment meets our criteria, our Group CEO and CFO will review and sign off on the investment and we’ll get heads of terms and shareholder agreements drawn up. As an equity stakeholder in your new business, it’s important we get this all agreed up front.

Our investment criteria is fairly simple; we’re looking for the following:


  1. A realistic budget.
  2. Demonstrable knowledge in your location(s) and sector(s).
  3. Proven sales growth and track record.
  4. A structured plan for your new business.
  5. A vision for how you want to develop your business.

We expect you to have at least 3-5 years’ experience in your chosen sector. We need to have confidence that you understand your market and have a well-developed network of clients and candidates.

We offer one of the best all-round investment and support packages available for recruiters and recruitment businesses. From providing all of the upfront funding, guaranteeing salaries, providing office premises, full provision of IT equipment and services, and all the support services you need, including IT, legal, HR, Finance, etc.

We’re focusing on recruitment businesses within the UK right now and already have established recruitment hubs in Birmingham, Chester, Leeds, Liverpool and Manchester – with other offices around the country. 


As long as you’re based in the UK, you can trade wherever, and we can support you.

We invest in businesses that we believe can be successful. That means a business that can scale and grow at pace, that is typically break-even in year one of our investment, and ready to exit in year three, or preferably join our core recruitment business portfolio for further growth, increased value, and wealth creation. 

Speak to me about your investment

Matt Cody

Investment Division CEO

“We have a proven approach to investing in the recruitment sector, scaling businesses rapidly, and creating value. Let's talk."

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